Commentary: Tax Loving Conservatives?

This may sound odd. Conservatives don’t love taxes. They want lower taxes. Right? They want lower taxes and smaller government. I wish that were true. It isn’t. Alexander Hamilton was a crusader for higher taxes and a larger national government in the 1790s. He wanted higher taxes in order to raise money for a higher federal debt. He wanted higher federal debt because he wanted investors in government IOUs to commit to the survival of the United States. Free-market economist Thomas DiLorenzo has summarized Hamilton’s position , which he accurately identifies as crony capitalism: In a lengthy “report” to Congress on the topic of the public debt Hamilton said that “a national debt, if it is not excessive, will be to us a public blessing.” He would spend the rest of his life politicking for excessive government spending — and debt. The reason Hamilton gave for favoring a large public debt was not to finance any particular project, or to stabilize financial markets, but to combine the interests of the affluent people of the country — particularly business people — to the government. As the owners of government bonds, he reasoned, they would forever support his agenda of higher taxes and bigger government. (He condemned Jefferson’s first inaugural address and its minimal government message as “the symptom of a pygmy mind.”) No wonder one historian entitled his book on Hamilton American Machiavelli . In 1791, Hamilton persuaded George Washington and then Congress to transfer to a group of private investors the right to set up a central bank that was not answerable to Congress or anyone else in government. The Bank of the United States had the right to create fiat money out of nothing, lend it to the government, and keep the interest paid by the government. This was the supreme institution of crony capitalism in America from 1791 to its expiration in 1811. He was also a big supporter of tariffs. Tariffs raised the money the government needed to pay interest to the Bank of the United States, which was independent of the government of the United States. Tariffs were taxes favored by big-government conservatives. They still are. Sales Taxes on Imports The Constitution authorizes tariffs. Why? Because the central government in 1787 was not allowed to tax states or individuals directly. So the framers gave it the power to tax imports. As a way to keep the US government out of most citizens’ lives and pocketbooks, tariffs made sense. They were a way to limit the central government. But Hamilton did not view tariffs as a way to keep the federal government small. He wanted it big. He also wanted high tariffs against imported goods as tools to subsidize his political allies: crony capitalists. Tariffs are sales taxes on imported goods. He saw that higher sales taxes on imported goods would subsidize American firms. How? By restricting foreigners from using lower prices to compete against domestic manufacturers. He wanted to reduce the degree of choices available to American customers. He wanted to subsidize American manufacturers by letting them charge higher prices than foreign producers would have charged had there been no sales tax on imports. Hamilton was the early Republic’s supreme philosopher of crony capitalism. His intellectual heirs are defenders of this strategy. This is why Hamilton is a favorite of both the Right and the Left. Biographies of Hamilton sell very well. He articulated our era’s version of capitalism: the bastard child of the Keynesian interventionist state. (Hamilton was the most influential bastard in American history.) Keynesianism is a philosophy of creative government spending and endless government debt. So is Hamiltonianism. Making a nation richer by taxing customers more than before is a strange idea: “Tax and grow rich.” It sounds like Keynesianism because it is Keynesianism. Passing a law against people who want to get together to make a voluntary exchange of assets is a restraint on trade. Why does a nation get richer by restricting trade? How is it that sending a man with a badge and a gun to keep people from doing what they want to do to improve themselves increases a nation’s wealth? Isn’t the idea of greater wealth the idea of greater opportunities to buy more things than before? Then how are people made richer by deliberately restricting the number of things they are allowed to buy? Hamilton’s intellectual heirs deny that greater wealth for Americans is based on greater freedom of trade. They argue the opposite: Reduced opportunities are the basis of wealth. The fewer opportunities you have to trade, the richer you are. If this sounds crazy, that’s because it’s crazy. But it is widely believed, especially by conservatives who swear they are anti-Keynesian defenders of limited government. They also argue that the more sales taxes that the federal government collects, the richer America is. Again, you may think that sounds like Keynesianism. It is Keynesianism. It is crony Keynesianism. “Logic Doesn’t Count” The amazing thing about Hamiltonians is that they are impervious to economic logic. They argue that raising taxes is bad, unless it’s the sales taxes called tariffs. Then they switch sides. They join the ranks of the tax collectors, the bureaucrats, and the people with badges and guns who say that higher taxes and reduced choices make America rich. They love badges and guns. They are convinced that badges and guns are the basis of economic growth and wealth for all. They really believe that if the government sends out enough people with badges and guns, extracting sales taxes from buyers of foreign goods, the nation will be stronger, richer, and freer. Of course, they want only “good” taxes. They want taxes of a special kind. They don’t promote increased taxation in general. No one supports increased taxes in general. The Left wants taxes on the rich for the sake of the poor. Hamiltonians want taxes on customers for the sake of crony capitalists and their employees. The Left wants taxes on the rich in the name of fairness. Hamiltonians want taxes on the middle class in the name of national prosperity. Both groups are committed to badges and guns. Fighting Tyranny with Tyranny Recently, I received an email from a committed Hamiltonian. He took exception to my assertion that reduced sales taxes would increase most people’s wealth. He argued as follows: It seems to me that you do not take account of “nationalism,” or nationhood. It is not that our manufacturers are less efficient than foreign manufacturers because of anything they, themselves, do. The reality is that our government imposes the causes of their “inefficiency” upon them. Therefore, to make things equal, our government ought to remove those artificial burdens, … either that or impose a tariff equal to those burdens in order to offset them. Let me summarize this argument: American manufacturers are not inefficient. They are hampered by our government. Therefore, we need a larger, more intrusive government to get our government off the backs of manufacturers. He is a Hamiltonian. As with all Hamiltonians, he cannot think straight. He has adopted the idea that, by making the federal government stronger, voters can overcome the effects of a much-too-strong federal government. He defends this in the name of nationalism or nationhood. I will now give you a test. See if you are a Hamiltonian. If you cannot follow this argument, you are a Hamiltonian. This Side and That Side You live on one side of the street. Across the street is Jones. Jones wants to sell you an item that you want to buy. Smith, your next door neighbor, also sells an item like the one Jones sells. But his item is priced 20 percent higher. He comes to you and tells you that, for the sake of This Side-ism, or This Sidehood, we must impose a sales tax of 25 percent on Jones’s item. After all, we don’t want to lose the wealth on This Side of the street. Without a sales tax, That Side will extend its grasping hand into This Side. You reject his suggestion as nonsense. You like Jones’ product. It’s sleek. It’s cheap. It’s a deal. “Butt out, Smith.” (Every time you buy anything, you are telling every other seller to butt out.) Smith, seeing that you are hopeless, approaches Brown, your other next-door neighbor, and warns him about the terrible threat posed by That Side to the way of life Over Here. He does not mention you, of co